In response to the problems posed by the financial and economic crisis, the European Commission has put forward a series of proposals better known as ‘European economic governance’. Running as a red line through the programme of economic governance is the idea of turning wages into the main instrument of adjustment: currency devaluations (which are no longer possible inside the Euro Area) are to be replaced by a devaluation of pay in the form of deflationary wage cuts. To achieve this wage “flexibility”, labour market institutions which prevent wages from falling are perceived as being a ‘rigidity’ which should be eliminated.

Under the “Competitiveness and Convergence Pact”, Member States intend to review wage setting arrangements, and, where necessary, the degree of centralisation in the bargaining process, as well as the indexation mechanisms. Unit labour costs will be monitored to check that wages evolve in line with productivity, both for economies as a whole and for each major sector. And wages in the public sector must support competitiveness in the private sector. As a consequence, a formidable list of possible European generated interventions in labour markets are on the agenda.

The ETUC will never support this kind of economic governance. Attacking wages and the labour market and slashing the welfare state is not the solution. On the contrary, this is likely to paralyse the scope for recovery and to exacerbate unemployment and insecurity.

The ETUC believes that European economic governance must consist of the very opposite to what the Commission is proposing: the aim of the governance must be to avoid social and wage dumping, and it must help towards the setting up of a European framework to allow the Member States to get out of debt and correct the high unemployment rates which they are currently faced with.

The ETUC’s Athens manifesto came out in favour of European economic governance which serves the people of Europe and not the markets, which embraces qualitative growth, full employment and the reinforcement of the European social model. Some important elements on which is should be based include a tax on financial transactions, harmonisation of the consolidated cost base for corporation tax, minimum taxation rates for businesses, actions in favour of euro-bonds and measures to protect investments for the future against blind austerity policies.